Monday, July 18, 2011

The centralizers always believe that going big will be a solution, but all it means is that the postponed bust will be bigger.

What this chart shows is the way that governments have attempted to arrest the ongoing debt deleveraging by swapping private debt for theoretically more secure "sovereign debt". However, as the incipient defaults of Greece, Ireland, Spain, Portugal, and possibly Italy demonstrate, sovereign debt is no more intrinsically secure than any other form of debt; there have been hundreds of sovereign debt defaults in the last 200 years. This chart shows that the explosion of government debt in the last two years is not limited to the USA, which is why the coming contraction is going to be a) worldwide, and b) an order of magnitude larger than the 1929 - 1940 depression.